Here's Why The M&A Surge May Not Last

M&A activity is up 39%, year-over-year, for the first five months of 2011, according to a new PricewaterhouseCoopers' report.

According to PwC, this is all about balance sheet conditions.

From the report:

...corporates continued to use their strong cash positions and stock prices as currency to make acquisitions. Cash on corporate balance sheets continues to grow - the available cash on S&P 500 company balance sheets currently exceeds $1.1 trillion, according to Factset. Through the first five months of 2011, corporates represented 82 percent of total deal volume with 1,046 transactions worth $384 billion, or 84 percent of total deal value.

PWC expects deal volume to continue to accelerate through the end of the year, assuming that market confidence is still improving. That assumption may be under threat from a slowdown in the U.S. economy, which is already damaging stock prices, a key driver of M&A activity.

Notably, foreign deals have grown significantly. In the first 5 months of 2010, U.S. firms spent $46 billion on deals outside the U.S. But in 2011, that's surged, with firms spending $84 billion on such deals.

From the report:

"The uptick in activity and value for outbound deals can be attributed to high growth expectations in emerging markets and fund managers' raising more geographic and sector focused funds in response to limited partner and investor demand," added PwC's Curragh. "We're seeing companies get more aggressive in pursuing outbound transactions and there is a potential for these deals to get larger in value."

Note the rise in early 2011 M&A activity, with the weakening economy and falling stock prices posing a threat to the industry's continued acceleration.